Alternative Funds’ New Best Friend: Bond-Market Worries?

By Brendan Conway

Fear trouble in the bond market? Here’s what an executive from alternative exchange-traded fund company ProShares says the company hears most often from investors: “How can we use your inverse fixed-income ETFs to manage our duration risk?”

That, at any rate, is what Joanne Hill, the company’s head of investment strategy, told conferencegoers Tuesday. ProShares is the $22 billion firm behind inverse and leveraged ETFs such as ProShares UltraShort S&P 500 (SDS) and ProShares Short S&P 500 (SH). The firm’s most popular product by assets is a bearish bet on bonds: the $3.3 billion UltraShort Barclays 20+ Years Treasury (TBT).

If more investors are studying the idea of inverse or leveraged bets against bonds, not many are acting on it, at least not yet. TBT is the only bond fund among the last month’s top 10 leveraged ETF asset gatherers, while the rest are mostly bets for or against the stock market. Data are from XTF.com.

A rising stock market has kept a lid on leveraged and inverse ETFs’ assets, which have plateaued around $30 billion the last few years. But trouble in bonds could change that — it could be the thing that pushes fresh investor interest in this arcane niche.

Correction 8:40 a.m. Feb. 13: Paragraph three of the original version of this post misstated where the UltraShort bond fund’s asset flows rank among other funds. It is the only bond fund among the top 10 leveraged ETF asset gatherers over the last month, not the only bond fund among the top 10 ETF asset gatherers.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.